Joint Research Center - European Commission
Department of Statistics and Operations Research, Research Platform Data Science, University of Vienna, Vienna Graduate School of Finance (VGSF) and Center for Financial Studies (CFS)
February 20, 2025
Bid the value of the arbitrage profit (scaring off front-runners) and earn \(0\) net profit (optimal strategy) Daniel and Hirshleifer (2018)
Deviate and bid a lower transaction fee in hopes of a positive profit. If front-run she earns a \(0\) gross profit and pays a reversion fee \(r>0\), yielding an expected loss
Average price improvements and the arbitrageur’s share from the price improvement (measured in percentage points). Average price improvement reports the average of the mid-price differences closed by arbitrage transactions across pool pairs in percentage points. Average arbitrageur’s share from price improvement columns report the share of the price improvement that generated a positive net profit for the arbitrageur (while the rest accrued to the validator in the form of transaction fees). The parentheses under the column names contain the fee levels corresponding to the ‘target’ positions. Share of blocks with positive effective price differences presents the percentage of blocks that contain a positive price difference.
Hypothetical and actual arbitrage profits (in million USD). Cumulative net profit from actual arbitrage transactions reports the net profit earned from actual arbitrage in USD. Cumulative payments to validators presents the USD value of the payments received by validators either in the form of fees or direct payments. Cumulative net profit from hypothetical arbitrage transactions columns report the net profit, in USD, that arbitrageurs could have hypothetically earned at the three transaction fee levels in a front-running risk-free market. The parentheses in columns four to six indicate the percentage of the actual net arbitrage profit foregone at various transaction fee levels.
| Cross-DEX Arbitrage | DEX-CEX Arbitrage | |
|---|---|---|
| Number of transactions | 144 | 24,881 |
| Cumulative gross profit (thousand USD) | 86.5 | 1,503.9 |
| Average gross profit (USD) | 601 | 60 |
| Std. dev. of gross profit (USD) | 2,145 | 767 |